Correlation Between Capital Securities and CTBC Financial

Can any of the company-specific risk be diversified away by investing in both Capital Securities and CTBC Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Capital Securities and CTBC Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Securities Corp and CTBC Financial Holding, you can compare the effects of market volatilities on Capital Securities and CTBC Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Capital Securities with a short position of CTBC Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Securities and CTBC Financial.

Diversification Opportunities for Capital Securities and CTBC Financial

0.82

Correlation Coefficient

Capital Securities  CTBC Financial

Very poor diversification

The 3 months correlation between Capital and CTBC is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Capital Securities Corp and CTBC Financial Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CTBC Financial Holding and Capital Securities is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Capital Securities Corp are associated (or correlated) with CTBC Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CTBC Financial Holding has no effect on the direction of Capital Securities i.e., Capital Securities and CTBC Financial go up and down completely randomly.

Pair Corralation between Capital Securities and CTBC Financial

Assuming the 90 days trading horizon Capital Securities Corp is expected to generate 1.03 times more return on investment than CTBC Financial. However, Capital Securities is 1.03 times more volatile than CTBC Financial Holding. It trades about 0.37 of its potential returns per unit of risk. CTBC Financial Holding is currently generating about 0.32 per unit of risk. If you would invest  2,150  in Capital Securities Corp on September 19, 2024 and sell it today you would earn a total of  215.00  from holding Capital Securities Corp or generate 10.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Capital Securities Corp  vs.  CTBC Financial Holding

Capital Securities Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Securities Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Capital Securities showed solid returns over the last few months and may actually be approaching a breakup point.

CTBC Financial Holding

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CTBC Financial Holding are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CTBC Financial showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Securities and CTBC Financial

The main advantage of trading using opposite Capital Securities and CTBC Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital Securities position performs unexpectedly, CTBC Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in CTBC Financial will offset losses from the drop in CTBC Financial's long position.

The idea behind Capital Securities Corp and CTBC Financial Holding pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.